While some withdrawals point to capital flight by wealthy Greeks, it is clear that households and companies are running down savings to make ends meet. The Athens Chamber of Commerce warned yesterday that its members are in “dire straits”, with a majority facing a liquidity threat.
Simon Ward from Henderson Global Investors said Greek lenders are covering their funding gap through loans from the European Central Bank (ECB), which reached a record €96bn in July. “The question is how much eligible collateral they have left to take to the ECB. It must be nearing the limits,” he said.
“What is worrying is that this is not just Greeks. Portuguese banks borrowed €50bn in July compared to €41.5bn in June. Together with Ireland and Spain they have borrowed €387bn from the ECB,” he said.
Because of the Euro system, Greece cannot do any stimulus work. Perhaps critics of the US stimulus efforts should consider this. Maybe Bush, Paulson, Obama, Bernanke, and Geitner are not such heinous spendthrifts after all. Worth considering. Pray for Greece and us.
IHS,
NW Bob
[blockquote]The Athens Chamber of Commerce warned yesterday that its members are in “dire straits”, with a majority facing a liquidity threat.[/blockquote]
It won’t go away because Europe refuses to acknowledge that the Greek crisis is [b]not[/b] a liquidity crisis. The Greek economic situation is an [b]insolvency[/b] crisis.
Liquidity threats have to do with liquid capital freezing up for whatever reason and locking up the economic system because no one will lend money to anyone else for fear of losing what capital they have, and the whole system grinds to a halt.
An insolvency crisis is when you simply can’t pay your bills because there is no liquid capital, frozen or otherwise, to pay it. In other words, you’ve spent beyond your means and can’t pay the bills when the bill comes due because you’re flat broke.
Until Europe comes to grips with the fact that Greece is broke, none of the EU bail out plans (premised on liquidity crises) are going to work. There is simply no liquid capital in Greece to free up. Hence, the problem.